Ontarians not already enrolled in a sizeable workplace pension plan will be phased into the Ontario Retirement Pension Plan (ORPP) between January 2017 and January 2020 based on employer size, the provincial government announced Tuesday. Benefit payouts meanwhile will commence for ORPP participants age 65 or older starting in 2022.
So when will you and your employer have to start socking away a portion of each paycheque for retirement under this new, mandatory plan? It depends on where you work.
The ORPP will be introduced in four waves, the provincial Liberals explained Tuesday. The first wave will see full-time and part-time workers at large companies with more than 500 employees and no comparable workplace pension plan start mandatory contributions as of Jan. 1, 2017.
The second wave will affect employees at medium-sized businesses with approximately 50 to 499 workers with contributions starting on Jan. 1 2018.
Employees at smaller firms with 50 or fewer employees will start contributions Jan. 1, 2019.
Every other working Ontarian without a comparable employer-sponsored pension plan will have to start contributing to the ORPP as of 2020, excluding self-employed Ontarians for whom the government has not yet included in the rollout for various political reasons.
To be exempt from the ORPP, you must have what the Wynne government considers a comparable workplace pension plan. A defined benefit pension plan has to meet a minimum benefit accrual rate of 0.5%. Any less than this and you may also have to contribute to the ORPP.
For a defined contribution pension plan to be considered comparable, you have to be contributing 8% annually and your employer must match 50% of this minimum rate.
Employers and employees affected by the ORPP will start with smaller contributions equivalent to 0.8% of earnings each (on the first $90,000 only) in the first year and 1.6% in the second year before ramping up to the maximum of 1.9% in the third and subsequent years.
Under the plan, a worker making $70,000 for example and contributing the equivalent of $3.46 a day for 40 years is expected to collect roughly $9,970 a year for life in retirement, after accounting for inflation.
If approved by legislature, the ORPP will affect some 3.5 million people, many of whom will not have to save much more, if at all, for retirement, experts say.
Premier Wynne’s plan has received mixed reactions. While some say it’s helping Ontarians save more for retirement, critics are calling it a payroll tax that will inhibit employees from contributing to their personal savings or managing their own investments.